Arcadia’s second attempt to get its CVA approved was successful today. Retail Week explores whether this will be the beginning of Arcadia’s revival or simply a stay of execution
Staff at Arcadia’s Colegrave House may be celebrating today but the green light of its CVA does not guarantee the business’ long-term prosperity. In fact, the survival rate for retailers post-CVA is notoriously poor.
Can Arcadia buck the trend and become a force to be reckoned with once more?
First, we need to consider whether the CVA itself has gone far enough. Arcadia plans to close 48 stores in its CVA and is looking for rent reductions on another 194 stores. It has more than 560 stores across the UK, having shut another 200 over the past three years.
“I don’t believe Arcadia’s planned store closures go far enough”
Jonathan De Mello, Harper Dennis Hobbs
A charitable view on those numbers might be that the business has carefully calculated just how deep a cut it needs to make to its estate and has acted accordingly. But you’d be hard-pressed to find a property market expert who thinks the same.
“I don’t believe Arcadia’s planned store closures go far enough,” says Harper Dennis Hobbs head of retail consultancy Jonathan De Mello, who adds that store closures will not solve Arcadia’s woes.
“They should have been more radical,” agrees Robert Carruthers, founder of consultancy ConsumerCast. “Those store closure figures are reactive. Look at how Next, for example, has treated its store portfolio – it has really got a clear view of what’s going to happen. Arcadia needed to be as rigorous.”
“It’s [still] a portfolio built for retail as it was eight to 10 years ago,” agrees the former boss of one high street fashion retailer. “They will reduce their cost base but 200 stores in the UK would cover enough markets for them.”
However, it is worth noting that more Arcadia store closures are likely as leases expire.
Missed the boat online
Arcadia’s turnaround plan is not limited to cutting its store estate. Its strategy comprises four strands: aggressively driving digital growth; doubling business-to-business revenue such as wholesale; boosting footfall; and driving cost efficiencies.
It aims to drive online and business-to-business sales by building on existing relationships with key partners and developing new strategic partnerships, such as its deal to sell on Asos, which has been welcomed by experts as an excellent way to reach its target customer.
“Going on Asos is really big deal and signals a turning point,” says GlobalData senior analyst Sofie Willmott. “Arcadia also has a lot of concessions in department stores and that is obviously a concern [because the department store sector is struggling] so they need to begin moving away from those – it will be a big proportion of revenue for some of those brands.”
However, many industry insiders are not convinced by Arcadia’s plans.
“It’s all very well to say you want to trade online – as if that isn’t competitive,” says Gifi Fields, who was an Arcadia supplier for decades before launching plus-size etail business Scarlett & Jo.
“The internet is democratic. Businesses can launch at low cost and if they’ve got the right product people will find it but if your product isn’t relevant people won’t buy it. If your service is no good, people won’t come back.”
“They’ve missed the online boat,” asserts Carruthers. He points out that the Gen Z and millennial demographics are smaller than previous generations as birth rates shrink and their spend is tighter. “There are less of them and spend is under pressure – they have been through an economic crisis.”
A narrower target customer
Independent analyst Richard Hyman believes Arcadia’s brands should cater to a narrower customer, rather than a wider demographic. “This is about less bums on seats, not more. You have to get smaller, refocus, recalibrate,” he says.
Accenture senior adviser Suzy Ross agrees and believes Arcadia needs to reconnect with its most valuable customers.
“They need to put customer profitability at the heart of everything,” she says. “Who are your most valuable customers and are you giving them what they want or are you chasing fickle new customers? A lot of retailers have lost sight of who makes them all their money.”
She adds that the business needs to base its decisions on data rather than instinct.
“Whatever has got you here won’t get you any further unless you begin to look at the data,” she says. “Retailers who are facing into the future understand that they need to make decisions differently. And the only way you can do that is to have a really granular understanding.
“If you are planning to shut stores, for instance, then you need to understand their importance to your highest value customers. Typically, when you do that you need to model what would happen if you lost those customers forever; when you are making a big strategic decision you need to start bringing to bear fact rather than hunches. You are up against likes of Amazon moving into fashion and they don’t move an inch without looking at the data.”
Experts question whether Arcadia’s plan is sufficient to secure the future of all its brands – Topshop, Topman, Miss Selfridge, Burton, Wallis, Outfit, Dorothy Perkins and Evans.
“I think the plan is positive but it is really just playing catch up,” says Hyman. “I think this is a business that’s been starved of investment. How can it go from being irrelevant and in inexorable decline to being very relevant and in the winners’ enclosure? How is Arcadia going to take market share from H&M, Next, Primark, River Island, Asos and Boohoo?”
“Generally speaking, people don’t want to shop in stores their mums and dads shopped in”
Richard Hyman, RAH Advisory
De Mello says: “Some of the brands within the Arcadia stable have frankly had their day and closing stores will not be enough to turn them round.”
One mid-market fashion retail chair believes that a brand refresh could save certain of Arcadia fascias, however.
“The people who were, in hindsight, smart were the Lewis family when they renamed Chelsea Girl and Snob and invented River Island. Something similar has to go on at Arcadia – all the brands like Dorothy Perkins, Wallis, Miss Selfridge and Evans just sound tired.”
No rebrand has been mooted by Arcadia within its turnaround strategy.
Hyman says a rebrand would be costly and is an “absurd idea”. “Making those brands cool again, and appealing to the customer, is really beyond the likelihood of reasonable investment,” he says. “Most of those brands are aiming at the children of the people they peaked with. Generally speaking, people don’t want to shop in stores their mums and dads shopped in.”
Global Data group research director Maureen Hinton suggests some brands would fare better outside of the Arcadia stable.
“Dorothy Perkins is in a secondary position in the stable but there are still a lot of people who shop there,” she says. “But the only way I can think of it working is if somebody else bought it out of administration. The same goes for Wallis and Evans – they are the kinds of brands that you can imagine Philip Day picking up for his stable.”
In fact, many question whether Green’s involvement could hinder the turnaround of the entire group, including jewel-in-the-crown Topshop.
“It can’t be done with Philip still the owner,” says a retail chair.
“It’s moved on and it needs a fresh pair of eyes on it. It’s very difficult when you’ve been the owner for quite some time to stand back from it and take some really quite difficult decisions. The fact is, somebody new will have a more realistic view of what needs to be done and what it is worth.”
Green is of course not alone in steering the turnaround of Arcadia but not much is known of his key lieutenants.
“It’s very difficult when you’ve been the owner for quite some time to stand back from it and take some really quite difficult decisions”
Former Burberry chief merchandising officer Paul Price heads up Topshop and Topman and ex-Mothercare operations boss James Graham have been at the business for less than two years, while Arcadia veterans Malcolm Storey (Dorothy Perkins and Burton), Anne Secunda (Wallis and Evans) and David Shepherd (Miss Selfridge) run the other chains.
Hinton questions whether Green will give these directors autonomy in leading change at their divisions. However, Hyman says top leaders may shun working with Green, who is plagued with harassment allegations that he denies, the latest being four charges brought by a pilates instructor from Tucson, Arizona, who alleges that he assaulted her at the Canyon Ranch resort.
Hyman believes strong leadership is more important now than at any recent point at its past when industry luminaries such as Jane Shepherdson and Mary Homer ran Topshop during its boom years.
“However important leadership and top talent has been in the past, it’s vastly more so now,” he says. “Leading and running a business in the slipstream is a hell of a lot easier than achieving success in a market that is flat at best and often going backwards.”
Gaining approval for its CVA is just the beginning. Strong leadership and a clear vision are crucial if Arcadia is to confound the critics and return to its former glory.
Arcadia CVA: Saved today, gone tomorrow?
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Arcadia CVA: Saved today, gone tomorrow?